Charles Schwab is Ending Commissions for Online Trading in U.S.
Charles Schwab said Tuesday that it is ending commissions or online trading in U.S. stocks, ETFs and options as a result of years of fee battles in the brokerage industry.
Shares of Schwab fell 9.7% while rival brokerage firm TD Ameritrade plummeted 25.8% for its worst day in 20 years. E-Trade shares fell 16.4% for its worst day since 2009.
Starting on Oct. 7, Schwab, will be cutting trading commission cost for U.S. stocks, ETFs and options from the previous $4.95 to zero. Trading options will continue to cost 65 cents per contract. The changes will apply to securities on Canadian exchanges as well.
The firm’s “passion has been to make investing easier and more affordable for everyone,” founder and Chairman Charles Schwab said in a press release.
“This is our price. Not a promotion. No catches. Period,” added CEO Walt Bettinger.
Schwab is no the first to offer no fees trades, but is really coming to the reality that this is necessary to be a market leader in the industry. Silicon Valley start-up Robinhood offered stock trading for free in 2013, analysts predicted it was only a matter of time before the major brokerages were also forced to go to zero. The announcement comes after Interactive Brokers took the same step toward commission-free trades on Thursday and J.P. Morgan Chase unveiled its own free trading app in August. Last summer, Vanguard Group announced investors using its online brokerage platform could trade all ETFs on a commission-free basis .
“Free trading isn’t a new theme in the industry, but the cadence of announcements from firms offering zero commission trades seems to be picking up, and we also note that many of these companies have more credible platforms (and capital behind them) than the offerings of the past,” said JMP Securities’ Devin Ryan in a note to clients last month.
Schwab’s announcement is likely to pressure TD Ameritrade and E-Trade to drop commission fees. However, trading commissions make up about 25% of TD Ameritrade’s annual revenue and 16% of E-Trade’s yearly revenue, JMP noted, a much larger portion of revenue than Schwab’s 7% annual revenue, the firm estimates.